For an oil-importing country such as the United States, the immediate effect of a supply shock caused by an increase in the price of imported oil would tend to be
A) an increase in real output and a decrease in the general level of prices.
B) a decrease in real output and an increase in the general level of prices.
C) a decrease in both the general level of prices and real output.
D) an increase in both the general level of prices and real output.

Question

Quizplus · Accepted Answer

An increase in the price of imported oil would lead to an increase in the cost of production for many firms, particularly those that rely heavily on oil as an input. As a result, these firms may reduce production, which would lead to a decrease in real output. Additionally, the higher cost of production would be passed on to consumers in the form of higher prices, which would lead to an increase in the general level of prices.

For an Oil-Importing Country Such as the United States, the Immediate